2016 (3) TMI 838 - HC - VAT and Sales Tax

Determination of classification and rate of tax - Sodium Silicate declared not as a specified item under any of the entries of Part- C of IInd Schedule by Commissioner - Taxed as a residuary item @12.5% under Vth schedule of the VAT Act - Reasonable opportunity of hearing not provided to existing manufacturers - Held that - the items that are listed as industrial inputs in Part- C of IInd Schedule of the VAT Act do not stand independently but refers to the corresponding entries in the C.E. Tariff Act. Therefore the determination of any question under Section 105(2) of the VAT Act, can t be made, without due application of mind, to the implication of the entries of the C.E. Tariff Act. The item Sodium Silicate as is understood in common parlance (glass frit or compounds of rare earth metals) is also required to be considered in determination on the taxability of the product, as was represented by the manufacturer Association. Deciding the higher rate of tax at the instance of a new manufacturer, who is exempted from tax to make the Ruling applicable to those who are not exempted from tax was not a correct approach. Therefore as the Commissioner gave the ruling at the instance of an exempted party without affording any hearing to the existing manufacturers who are impacted by the said decision, the Commissioner is directed to re-determine the classification and the rate of tax for Sodium Silicate, by providing a reasonable opportunity of hearing to the Association. - Decidde in favour of appellant

Issues:
1. Classification of Sodium Silicate for tax purposes under the Assam Value Added Tax Act, 2003.
2. Determination of the applicable tax rate for Sodium Silicate.
3. Consideration of representation by Sodium Silicate manufacturers for inclusion in the lower tax bracket.
4. Impact of the Commissioner's decision on existing manufacturers and new entrants.
5. Compliance with procedural requirements for determining tax rates.

Issue 1: Classification of Sodium Silicate for tax purposes under the Assam Value Added Tax Act, 2003:
The petitioner, a Sodium Silicate manufacturer, challenged the Commissioner's order classifying Sodium Silicate as a residuary item under the Vth Schedule of the VAT Act, subjecting it to a tax rate of 12.5%. The petitioner argued that Sodium Silicate should be considered an industrial input under Part-'C' of the IInd Schedule, aligning with the Central Excise Tariff Act's entries.

Issue 2: Determination of the applicable tax rate for Sodium Silicate:
The petitioner contended that Sodium Silicate should be taxed at a lower rate of 4% under the VAT Act, emphasizing its composition and industrial use. Conversely, the standing counsel for the Finance (Taxation) Department argued that since Sodium Silicate was not listed in Part-'C' of the IInd Schedule, it should be taxed at the higher rate of 12.5% under the Vth Schedule.

Issue 3: Consideration of representation by Sodium Silicate manufacturers for inclusion in the lower tax bracket:
The Sodium Silicate manufacturers, through an association, submitted a representation for the inclusion of Sodium Silicate as an industrial input to be taxed at a lower rate. However, no decision was made on this representation, and instead, a new entrant's application led to the Commissioner's order imposing the higher tax rate.

Issue 4: Impact of the Commissioner's decision on existing manufacturers and new entrants:
The petitioner argued that the decision favoring the new entrant, who was exempt from taxation, would unfairly disadvantage existing manufacturers subject to tax. The lack of consideration for existing manufacturers in the decision-making process was highlighted as unjust.

Issue 5: Compliance with procedural requirements for determining tax rates:
The judgment emphasized that decisions on tax rates under the VAT Act must follow due process, including affording a reasonable opportunity for hearing to concerned parties. It was noted that the Commissioner's order lacked proper consideration of relevant parameters and the implications on existing manufacturers.

In conclusion, the High Court directed the Commissioner to re-determine the classification and tax rate for Sodium Silicate, ensuring a fair hearing for the association representing the manufacturers. The judgment highlighted the importance of considering all relevant factors, including the product's composition, industrial use, and market understanding, in determining the taxability of Sodium Silicate.

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